Oil slips towards $108 on demand worries, ample supply

Oil slipped towards $108 on Tuesday, declining for a second day on worries about demand growth in a well supplied market as the United States and Europe grapple with fragile economies.

The International Energy Agency, which advises industrialised nations on energy policy, issued a bearish report on Tuesday, showing improving supply, more limited increases in demand and rising global inventories.

The IEA said Iran's production and exports had both rebounded in October, adding to growing global supply.

Oil also came under pressure from other asset markets with uncertainty over the euro zone's debt problems and caution over a U.S. fiscal policy standoff pushing the euro to a two-month low and depressing European shares.

Brent slipped 98 cents to $108.09 a barrel by 132 GMT after settling below its 100-day moving average of $109.19. U.S. crude declined 47 cents to $85.10 after ending 50 cents lower.

"What we can see now is that the market is well supplied," IEA Executive Director Maria van der Hoeven told an oil conference in London, underlining the bearish outlook for oil.

OPEC Secretary General Abdullah al-Badri, attending the same conference in London, agreed:

"There is no shortage anywhere in the world."

U.S. lawmakers return to Washington on Tuesday with a seven-week deadline to reach agreement on scheduled tax hikes and budget cuts that threaten to trigger another recession.

Both Democrats and Republicans generally agree on the need to avoid the jolt of $600 billion in deficit-reduction measures agreed in August 2011. But they disagree whether to extend tax cuts for everyone as Republicans want or just for those earning below $250,000 a year as the president wants.

In Europe, global lenders held back from giving further aid to debt-stricken Greece but gave the country two more years to make the cuts demanded of it.

Brent has stayed over $100 through most of this year despite a weakening demand outlook, touching a high of $128 in March, on worries of a disruption in supply from the Middle East as tension escalated over Iran's disputed nuclear programme.

The United States and Europe have imposed sanctions on Iran to choke off Tehran's oil revenues and pressure it to halt the programme, which the West claims is aimed at building atomic weapons. Iran says it is intended for peaceful uses.

About 8,000 elite and regular army troops will participate in an Iranian military drill, backed by bombers and fighter planes in manoeuvres taking place this week that involve the biggest air drills the country has ever held, Iran's English-language Press TV said.

The announcement comes less than a week after Washington accused Iranian warplanes of firing on a U.S. drone.

(Additional reporting by Manash Goswami in Singapore; writing by Christopher Johnson; editing by Jane Baird and James Jukwey)